What is Gross Profit?
Nexa Consultancy | Startup & Finance Glossary
Gross Profit is the profit a company makes after deducting the direct costs associated with producing and selling its products or services (known as the Cost of Goods Sold or COGS). It is a key measure of a company's core profitability and production efficiency before accounting for general operating expenses.
For Startups: For startups, a healthy and growing gross profit is a strong indicator of a viable business model. Investors closely analyze gross profit and gross margin to assess whether the company's core offering is profitable and scalable. A business with a low gross profit will struggle to cover its operating costs and achieve overall profitability.
Calculation: Gross Profit = Revenue - Cost of Goods Sold (COGS).
Example: A D2C brand has revenues of ₹50 Lakhs and its COGS (cost of materials and direct labor) is ₹20 Lakhs. Its gross profit is ₹30 Lakhs.